Corporate Sustainability Due Diligence EU Directive
Overview of the requirements
The Corporate Sustainability Due Diligence EU Directive will apply to an organisation’s own operations, as well as to those of their subsidiaries and their value chains. Therefore, organisations should examine both their direct and indirect business relationships.
Organisations will have to:
- integrate the due diligence requirements to their policies;
- identify actual or potential adverse human rights and environmental impacts;
- prevent or mitigate potential impacts;
- bring to an end or minimise actual impacts;
- establish and maintain a complaints procedure;
- monitor the effectiveness of the due diligence policy and measures;
- and publicly communicate on due diligence.
A significant addition of the proposal is the introduction of climate and environmental protection into the due diligence catalogue. While initiatives, such as the German Supply Chain Act, only indirectly tackle environmental protection, the European equivalent explicitly includes negative impacts on the environment in its scope of protection. For instance, organisations that fall within Group 1 will have to ensure that their business strategy is compatible with the Paris Agreement – to limit global warming to 1.5°C.
The proposal also calls for the direct involvement of organisational directors with specific duties to fulfill. These include setting up and overseeing the implementation of due diligence, as well as integrating it into the corporate strategy. Alongside their organisation’s best interest, directors will now have to consider human rights, climate change and the environmental consequences of their decisions. In addition, in cases of variable remuneration, there will be incentives for corporate plans that help combat climate change.
The Act does not neglect providing support to all organisations that might be affected, directly or indirectly. The proposal includes accompanying measures to provide guidance (e.g. model contract clauses). These might be complemented with more measures in the future.
Each Member State will have to appoint national administrative authorities responsible for supervising the rules. These authorities might be able to impose fines in case of non-compliance. Furthermore, potential victims will have the opportunity to take legal action for damages that could have been avoided with appropriate due diligence measures.
The proposal will be presented to the European Parliament and the Council for approval. Once adopted, Member States will have two years to transpose the Directive into national law and communicate the relevant texts to the Commission. For Group 2, the rules will start to apply 2 years later than for Group 1. Even though the process will take some time, the European Commission recommends that organisations start aligning their values, purpose and objectives with the expected provisions now.
Source: European Commission